UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-7931
FIRST COMMERCE CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-0701203
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 St. Charles Avenue, 29th Floor 70170
New Orleans, Louisiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (504) 623-1371
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the last practicable date.
Class Outstanding as of July 31, 1997
----- -------------------------------
Common Stock, $5.00 par value 39,004,120
FIRST COMMERCE CORPORATION
TABLE OF CONTENTS
Page No.
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Part I: Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 10
Part II: Other Information 24
FIRST COMMERCE CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
(dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 432,619 $ 440,347
Interest-bearing deposits in banks 60 134
Securities available for sale, at fair value 2,050,312 2,177,529
Trading account securities 27,172 13,122
Federal funds sold and securities purchased under resale agreements 6,440 59,250
Loans, net of unearned income of $1,184 and $2,589, respectively 6,522,706 6,217,483
Allowance for loan losses (87,713) (81,606)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 6,434,993 6,135,877
==============================================================================================================================
Premises and equipment 166,858 170,431
Accrued interest receivable 112,689 105,888
Other assets 102,443 87,532
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $9,333,586 $9,190,110
==============================================================================================================================
LIABILITIES
Noninterest-bearing deposits $1,365,734 $1,436,038
Interest-bearing deposits 6,313,691 5,868,808
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 7,679,425 7,304,846
==============================================================================================================================
Short-term borrowings 415,638 944,823
Accrued interest payable 53,832 44,160
Accounts payable and other accrued liabilities 81,663 91,883
Long-term debt 340,230 80,723
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,570,788 8,466,435
==============================================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares authorized, none issued - -
Common stock, $5 par value
Authorized -- 100,000,000 shares
Issued -- 39,015,768 and 39,402,926 shares, respectively 195,079 197,015
Capital surplus 161,191 146,390
Retained earnings 392,957 373,521
Treasury stock -- 24,511 and 482,998 common shares, respectively, at cost (977) (13,150)
Unearned restricted stock compensation (6,186) (2,956)
Net unrealized gain on securities available for sale 20,734 22,855
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 762,798 723,675
==============================================================================================================================
Total liabilities and stockholders' equity $9,333,586 $9,190,110
==============================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Balance Sheets.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $140,414 $116,803 $275,880 $230,945
Interest and dividends on taxable securities 32,505 34,380 66,007 72,788
Interest on tax-exempt securities 1,469 1,585 2,979 3,186
Interest on money market investments 733 1,282 1,412 2,205
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 175,121 154,050 346,278 309,124
==================================================================================================================================
INTEREST EXPENSE
Interest on deposits 65,961 54,929 128,464 110,042
Interest on short-term borrowings 5,773 5,545 13,067 13,862
Interest on long-term debt 6,951 2,608 12,478 5,327
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 78,685 63,082 154,009 129,231
==================================================================================================================================
NET INTEREST INCOME 96,436 90,968 192,269 179,893
PROVISION FOR LOAN LOSSES 14,775 7,465 28,000 11,290
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 81,661 83,503 164,269 168,603
==================================================================================================================================
OTHER INCOME
Deposit fees and service charges 14,190 14,790 28,228 29,209
Credit card fee income 14,411 11,165 26,972 21,103
Trust fee income 5,809 5,339 11,230 9,917
Broker/dealer revenue 2,696 2,580 5,474 5,145
ATM fee income 2,701 2,507 5,304 4,898
Other operating revenue 6,008 6,120 12,152 13,029
Venture capital securities transactions 3,009 - 3,009 -
Securities transactions 780 (84) 803 1,123
- ----------------------------------------------------------------------------------------------------------------------------------
Total other income 49,604 42,417 93,172 84,424
==================================================================================================================================
OPERATING EXPENSE
Salary expense 37,318 37,376 76,453 73,393
Employee benefits 6,958 7,375 14,429 15,454
- ----------------------------------------------------------------------------------------------------------------------------------
Total personnel expense 44,276 44,751 90,882 88,847
Equipment expense 7,476 6,008 14,610 12,796
Net occupancy expense 5,410 5,186 10,551 10,809
Communications and delivery expense 5,057 4,673 10,101 9,643
Advertising expense 4,078 3,392 7,913 6,636
Professional fees 3,368 3,119 5,890 6,650
FDIC insurance expense 342 638 665 1,215
Other operating expense 12,162 10,377 24,399 21,334
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expense 82,169 78,144 165,011 157,930
==================================================================================================================================
INCOME BEFORE INCOME TAX EXPENSE 49,096 47,776 92,430 95,097
INCOME TAX EXPENSE 16,237 16,109 30,551 31,897
==================================================================================================================================
NET INCOME 32,859 31,667 61,879 63,200
PREFERRED DIVIDEND REQUIREMENTS - 705 - 1,418
==================================================================================================================================
INCOME APPLICABLE TO COMMON SHARES $32,859 $30,962 $61,879 $61,782
==================================================================================================================================
EARNINGS PER COMMON SHARE
Primary $0.83 $0.79 $1.57 $1.58
Fully diluted $0.81 $0.76 $1.54 $1.51
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 39,606,383 39,114,461 39,438,533 39,006,498
Fully diluted 42,648,573 43,971,989 42,484,392 44,020,801
==================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
FIRST COMMERCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================================================
Six Months Ended
June 30
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 61,879 $ 63,200
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 28,000 11,290
Depreciation and amortization of premises and equipment 12,341 11,133
Amortization of intangibles 1,163 1,461
Deferred income tax (benefit) (2,464) (733)
Net deferred loan (fees) (2,084) (4,145)
Net (gain) from venture capital securities transactions (3,009) -
Net (gain) from securities transactions (803) (1,123)
Net (gain) on branch divestiture - (1,137)
(Increase) in trading account securities (14,050) (15,706)
(Increase) in accrued interest receivable (6,801) (1,950)
(Increase) in other assets (12,987) (11,009)
Increase (decrease) in accrued interest payable 9,672 (1,027)
Increase in accounts payable and other accrued liabilities 1,058 6,469
Other, net 5,964 2,908
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 77,879 59,631
================================================================================================================================
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks 74 541
Proceeds from sales of securities available for sale 6,877 5
Proceeds from maturities/calls of securities available for sale 493,126 517,377
Purchases of securities available for sale (371,699) (196,712)
Net decrease in federal funds sold and securities purchased under resale agreements 52,810 23,060
Net (increase) in loans (335,731) (317,578)
Branch divestiture - (14,410)
Purchases of premises and equipment (10,096) (13,831)
Proceeds from sales of foreclosed assets 8,113 7,169
Other, net 1,857 1,360
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (154,669) 6,981
================================================================================================================================
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market accounts and savings accounts 9,710 (142,351)
Net increase in time deposits 363,029 47,705
Net (decrease) in short-term borrowings (529,185) (32,260)
Issuance of bank notes 258,664 -
Payments on long-term debt (13) (67)
Cash dividends paid (31,168) (28,588)
Proceeds from issuance of common and treasury stock 1,043 313
Purchase of treasury stock (3,018) (1,225)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 69,062 (156,473)
================================================================================================================================
(DECREASE) IN CASH AND CASH EQUIVALENTS (7,728) (89,861)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 440,347 497,268
================================================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $432,619 $407,407
================================================================================================================================
Cash paid during the period for
Interest expense $144,337 $130,354
Income taxes $33,332 $30,620
================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
FIRST COMMERCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accounting and reporting policies of First Commerce
Corporation and its subsidiaries (FCC) conform with generally
accepted accounting principles and with general practices
within the financial services industry. In preparing the
consolidated financial statements, FCC is required to make
estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
The consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of the consolidated financial
condition, results of operations and cash flows for the interim
periods presented. Adjustments included herein are of a normal
recurring nature and include appropriate estimated provisions.
The consolidated financial statements for the interim periods
have not been independently audited. However, the interim
consolidated financial statements have been reviewed by FCC's
independent public accountants in accordance with standards for
such reviews established by the American Institute of Certified
Public Accountants, and their review report is included herein.
The Notes to Consolidated Financial Statements included
herein should be read in conjunction with the Notes to
Consolidated Financial Statements included in FCC's 1996 Annual
Report to Shareholders.
NOTE 2 - ACCOUNTING FOR INTEREST RATE CONTRACTS
FCC uses various interest rate contracts including
interest rate swaps and option based instruments such as
floors, caps and collars to manage its interest rate exposure.
Currently, FCC has interest rate swaps and floors. These
interest rate contracts hedge against interest rate risk by
reducing either cash flow or market value risk on specific
assets or liabilities and are accounted for under the hedge
accounting method. Revenues or expenses on these contracts are
recognized over the lives of the agreements as adjustments to
interest income or expense of the asset or liability hedged.
Related fees and any premiums paid or received are deferred and
amortized over the lives of the agreements. Any realized gains
and losses resulting from early termination of interest rate
contracts are deferred and amortized to the earlier of the
maturity date of the hedged asset or liability, or the original
expiration date of the contract. If the asset or liability
being hedged is disposed of, any unrealized or deferred gain or
loss on the related interest rate contract is included in
determining the gain or loss from the disposition. The
derivative portfolio's performance is evaluated by management
on a continuous basis through the use of an effectiveness
report. Each derivative's objective is compared to its actual
performance so that management can assess the effectiveness of
FCC's interest rate risk strategies. Interest rate contracts
not qualifying for deferral accounting are recorded at market
value. Any changes in market value are recognized in other
income.
NOTE 3 - CREDIT CARD SECURITIZATION
On August 7, 1997, FCC's subsidiary bank, First National
Bank of Commerce (First NBC), issued $300 million of credit
card securities which are backed by the cash flows from credit
card receivables. The offering is through a trust called First
NBC Credit Card Master Trust and is part of a $750 million
shelf registration for credit card securities. First NBC
retained the servicing and customer relationships of the
underlying credit card accounts.
The offering included a publicly offered $259.5 million
series 1997-1, Class A certificates with a coupon of 6.15% and
an expected maturity of August, 2002 and $21 million of Series
1997-1, Class B certificates with a coupon of 6.35% and an
expected maturity of September, 2002. Series 1997-1 also
included a privately funded $19.5 million collateral interest,
which is subordinated to the Class A and Class B certificates.
This offering will be accounted for as a sale under the
criteria established by SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of
Liabilities".
NOTE 4 - LONG-TERM DEBT
In January 1997, First NBC established an ongoing bank note
program. During the first quarter of 1997, $260 million par
value of bank notes were issued, with an average original
maturity of three years and an effective yield of 6.56%. There
were no bank notes issued in the second quarter of 1997.
NOTE 5 - STOCK-BASED INCENTIVE COMPENSATION PLANS
On April 21, 1997, FCC's shareholders approved the FCC
1997 Stock Option Plan (the "Option Plan"). Under the Option
Plan, all outstanding stock appreciation rights (SARs) were
canceled and replaced with stock options with equivalent terms.
On April 25, 1997, each SAR was exchanged for one newly-issued
option to purchase one share of FCC's common stock. The
options issued in exchange for SARs totaled 988,168. FCC's
closing stock price on April 25, 1997 was $39.63.
At June 30, 1997, FCC's outstanding stock options totaled
2,048,833 with a weighted average exercise price of $28.33.
Exercisable stock options totaled 935,412 at June 30, 1997.
During the first quarter of 1997, 254,633 stock options
were granted at a weighted average exercise price of $40.13.
Additionally, 97,947 shares of restricted stock plus performance
shares equal to 50% of restricted shares were granted on this
date.
Stock options are granted at fair value at the date of the
grant. Options have a four-year vesting schedule with 25% of
the options becoming exercisable each year. The options expire
eight years from the date of grant.
In the event of a change in control of FCC, all
outstanding options become exercisable immediately, and the
restrictions on all shares of restricted stock lapse
immediately.
NOTE 6 - EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings
Per Share" which establishes standards for computing and
presenting earnings per share ("eps"). Under SFAS No. 128,
primary eps is replaced with basic eps. Basic eps is computed
by dividing income applicable to common shares by the weighted
average shares outstanding; no dilution for any potentially
convertible shares is included in the calculation. Fully
diluted eps, now called diluted eps, is still required;
however, when applying the treasury stock method, the average
stock price is used rather than the greater of the average or
closing stock price for the period. Under SFAS No. 128, basic
eps was $.85 and $.80 for the second quarters of 1997 and 1996,
respectively. Diluted eps was $.81 for the second quarter of
1997 and $.76 for the second quarter of 1996. Basic eps was
$1.60 for both of the six-month periods ending June 30, 1997
and 1996. For the six-month periods ending June 30, 1997 and
1996, diluted eps was $1.54 and $1.51, respectively. SFAS No.
128 is effective for financial statements issued for periods
ending after December 15, 1997.
NOTE 7 - CONTINGENCIES
FCC and its subsidiaries have been named as defendants in
various legal actions arising from normal business activities
in which damages in various amounts are claimed. The amount, if
any, of ultimate liability with respect to such claims cannot
be determined. However, after consulting with legal counsel,
management believes any such liability will not have a material
adverse effect on FCC's consolidated financial condition or
results of operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
and Board of Directors of
First Commerce Corporation:
We have reviewed the accompanying consolidated balance
sheet of FIRST COMMERCE CORPORATION (a Louisiana corporation)
and subsidiaries as of June 30, 1997, and the related
consolidated statements of income and cash flows for the three-
month and six-month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of
an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
First Commerce Corporation and subsidiaries as of December 31,
1996 and the related statements of income, changes in
stockholders' equity and cash flows for the year then ended
(not presented herein) and, in our report dated January 10,
1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set
forth in the accompanying consolidated condensed balance sheet
as of December 31, 1996 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
August 7, 1997
FIRST COMMERCE CORPORATION
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data) 1997 1996
==================================================================================================================
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $9,108,807 $9,082,650 $8,843,783 $8,526,062 $8,284,388
Earning assets 8,444,555 8,400,237 8,188,195 7,857,391 7,576,406
Loans 6,328,964 6,206,007 5,982,771 5,612,251 5,277,895
Securities 2,058,183 2,137,468 2,157,419 2,201,775 2,197,283
Deposits 7,462,260 7,372,870 6,950,851 6,792,549 6,917,697
Long-term debt 340,208 257,275 82,460 85,912 85,980
Stockholders' equity 736,360 723,937 710,131 709,896 738,940
- ------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total interest income $ 175,121 $ 171,157 $ 169,763 $ 162,338 $ 154,050
Net interest income 96,436 95,833 96,232 93,617 90,968
Net interest income (FTE) 98,292 97,592 97,776 95,051 92,289
Provision for loan losses 14,775 13,225 14,168 12,525 7,465
Other income (exclusive of securities transactions) 45,815 43,545 45,498 43,578 42,501
Venture capital securities transactions 3,009 - - (1,200) -
Securities transactions 780 23 407 (170) (84)
Operating expense 82,169 82,842 85,304 83,614 78,144
Operating income 30,396 29,005 28,442 27,422 31,722
Net income 32,859 29,020 28,707 26,531 31,667
- ------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.45% 1.30% 1.29% 1.24% 1.54%
Return on average total equity 17.90% 16.26% 16.08% 14.87% 17.24%
Return on average common equity 17.90% 16.26% 16.81% 15.31% 17.79%
Net interest margin 4.67% 4.70% 4.76% 4.82% 4.89%
Efficiency ratio 57.02% 58.70% 59.54% 60.31% 57.97%
Overhead ratio 1.73% 1.90% 1.93% 2.03% 1.89%
Average loans to average deposits 84.81% 84.17% 86.07% 82.62% 76.30%
Allowance for loan losses to loans 1.34% 1.31% 1.31% 1.36% 1.39%
Nonperforming assets to loans plus foreclosed assets 0.56% 0.59% 0.51% 0.57% 0.61%
Allowance for loan losses to nonperforming loans 258.92% 255.47% 299.42% 279.00% 265.98%
Equity ratio 8.17% 7.79% 7.87% 8.03% 8.80%
Leverage ratio 7.98% 7.70% 7.76% 7.90% 8.65%
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Earnings Per Common Share
Net income - primary $ 0.83 $ 0.74 $ 0.76 $ 0.68 $ 0.79
Net income - fully diluted $ 0.81 $ 0.73 $ 0.72 $ 0.66 $ 0.76
Operating income - primary $ 0.77 $ 0.74 $ 0.75 $ 0.71 $ 0.79
Operating income - fully diluted $ 0.75 $ 0.73 $ 0.71 $ 0.67 $ 0.76
Common Dividends
Cash dividends $ 0.40 $ 0.40 $ 0.40 $ 0.35 $ 0.35
Dividend payout ratio 48.19% 54.05% 52.63% 51.47% 44.30%
Book Value (end of period)
Book value $ 19.67 $ 18.58 $ 18.66 $ 17.96 $ 18.11
Tangible book value $ 19.24 $ 18.13 $ 18.20 $ 17.46 $ 17.61
Common Stock Data
High stock price $ 48.25 $ 46.38 $ 39.88 $ 36.63 $ 36.00
Low stock price $ 39.00 $ 38.25 $ 34.88 $ 33.25 $ 32.25
Closing stock price $ 44.00 $ 40.50 $ 38.88 $ 34.88 $ 35.38
Trading volume (in thousands) 8,225 8,049 7,095 9,118 5,498
Number of stockholders (end of period) 9,193 9,223 9,319 9,267 9,257
Average Shares Outstanding (in thousands)
Primary 39,606 39,269 37,771 38,074 39,114
Fully diluted 42,649 42,286 42,256 42,895 43,972
NUMBER OF EMPLOYEES (end of period) 4,002 4,058 4,036 3,997 4,053
=================================================================================================================
SECOND QUARTER IN REVIEW
First Commerce Corporation's (FCC's) net income for the
second quarter of 1997 was $32.9 million, compared to $31.7
million in last year's second quarter. Fully diluted earnings
per share were $.81 in 1997's second quarter, compared to $.76
in the second quarter of 1996. Return on average equity was
17.90%, and return on average assets was 1.45% for the second
quarter of 1997. The key points of the second quarter's
results included the following:
Net interest income (FTE) rose 7% from last year's second
quarter, mainly on the strength of loan growth.
The provision for loan losses was $14.8 million in the
second quarter, compared to $7.5 million in 1996's second
quarter. The provision increase from 1996's second quarter
was related to loan growth and higher net charge-offs.
Other income, excluding investment securities transactions,
was 15% higher than in last year's second quarter.
Contributing to this increase was growth of credit card fees
and a net gain of $3.0 million from venture capital
securities transactions.
Operating expense was 5% higher than the second quarter of
1996. The efficiency ratio declined to 57.02% for the
current quarter from 57.97% in 1996's second quarter.
A more detailed review of FCC's financial condition and
earnings for the second quarter of 1997 follows. This review
should be read in conjunction with the consolidated financial
statements of First Commerce Corporation and Subsidiaries
included in this report, and the Financial Review in the 1996
Annual Report.
EARNINGS ANALYSIS
Net Interest Income
Net interest income (FTE) for the second quarter of 1997
was $98.3 million, 7% higher than last year's second quarter.
The higher net interest income principally reflected average
loan growth. Average loans grew 20%, while average earning
assets rose 11%, resulting in a more favorable mix of earning
assets. As a percent of earning assets, average loans
increased to 75% in the current quarter, compared to 70% in
1996's second quarter. Loan growth was primarily funded by
increased levels of deposits and long-term debt. Growth in
deposits mainly reflected the issuance of retail brokered CDs
and higher levels of public funds deposits. Higher long-term
debt resulted from bank notes issued.
The net interest margin was 4.67% this quarter, compared
to 4.89% in the second quarter of 1996. The decline was caused
by a 36 basis point rise in the cost of interest-bearing
liabilities. The higher funding costs reflected rates paid on
FCC's increased level of longer-term funding sources, plus
FCC's strategies of client migration and retention, which may
result in moving a client to a higher rate account to improve
retention and longer-term profitability. Higher funding costs
were partially offset by a 16 basis point increase in the yield
on earning assets, primarily due to the shift in the mix to a
higher proportion of loans.
For the first six months of 1997, net interest income
(FTE) was $195.9 million, a 7% increase from 1996's same
period. This improvement reflects 20% growth in average loans.
The net interest margin was 4.68% for the first half of 1997,
compared to 4.80% last year. The decline was related to higher
funding costs, which primarily reflected FCC's increased level
of longer-term funding sources.
Table 1 presents average balance sheets, net interest
income (FTE) and interest rates for the second quarters of 1997
and 1996, and for the first six months of 1997 and 1996. Table
2 analyzes the components of changes in net interest income
between these periods.
Provision For Loan Losses
The provision for loan losses was $14.8 million in 1997's
second quarter, compared to $7.5 million in last year's same
quarter. The provision exceeded net charge-offs by $6.0
million in 1997's second quarter, a reflection of both the
strong loan growth and the effect of increasing charge-offs
during the last twelve months which impacted the experience
factor used in the allowance calculation, both of which are
expected to be factors in the provision calculation over the
next few quarters. For the six-month periods, the provision
was $28.0 million in 1997, compared to $11.3 million in 1996.
Higher net charge-offs and loan growth caused the increase.
Dependent primarily upon economic conditions, national and
regional trends, net charge-off levels, and changes in the
level and mix of the loan portfolio, FCC's provision for loan
losses may grow in future periods.
For a discussion of the allowance for loan losses, net
charge-offs and nonperforming assets, see the Credit Risk
Management section of this Financial Review.
Other Income
Other income, excluding investment securities
transactions, was $48.8 million in the second quarter, compared
to $42.5 million in the same quarter of 1996. Credit card fee
income and venture capital securities transactions were the
most significant contributors to the increase. Credit card fee
income rose $3.2 million, or 29%, reflecting higher purchase
volumes and late charge fee income. Higher late charge fee
income was driven by both volume and pricing increases. The
venture capital business realized a net gain of $3.0 million
from the sale of certain securities in which it invested. FCC
began its venture capital business in 1994 to provide companies
with capital for growth through expansion or acquisition,
satisfying the corporate finance needs that traditional bank
lending could not meet. Additional increases experienced in
trust income ($470,000, or 9%) and broker/dealer revenue
($116,000, or 4%) were mainly related to higher business
volumes. Service charges on deposits fell 4% from 1996's
second quarter, reflecting FCC's strategies of client migration
and retention, which may result in moving a client to a lower
fee account to improve retention and longer-term profitability.
For the six-month period, other income, excluding
investment securities transactions, was $92.4 million, 11%
higher than in 1996. Improvements in credit card ($5.9
million, or 28%) and trust ($1.3 million, or 13%) income were
the primary causes of the increase, and mainly reflected a
continuing rise in business volumes. The $3.0 million net gain
on venture capital securities transactions also contributed to
the increase.
Investment securities transactions resulted in pretax net
gains of $780,000 in the second quarter of 1997, compared to
pretax net losses of $84,000 in last year's same quarter.
Pretax net gains of $803,000 and $1.1 million were recorded in
the six months ended June 30, 1997 and 1996, respectively.
Operating Expense
Operating expense was $82.2 million in 1997's second
quarter, up 5% from the second quarter of 1996. Equipment
expense grew $1.5 million, or 24%, reflecting increased
depreciation. Advertising expense rose ($686,000, or 20%),
mainly reflecting increased credit card and promotions
expenses. Personnel expense was 1% lower than 1996's same
quarter, reflecting lower stock appreciation rights (SARs)
expense, partially offset by annual merit raises. On April 25,
1997, all outstanding SARs were canceled and replaced with
stock options with equivalent terms. Compensation expense
is increased or decreased in connection with SARs based on the
market value of FCC's common stock; therefore, this expense
is subject to the volatility of the stock market. This exchange
capped the total expense at the stock price on the exchange date,
eliminating this volatility. The efficiency ratio was 57.02%
for the current quarter, compared to 57.97% in 1996's second
quarter.
For the six-month period, operating expense rose $7.1
million, or 4%. Personnel expense increased $2.0 million, or
2%, due to annual merit raises, partially offset by lower SARs
expense. Higher equipment ($1.8 million), advertising ($1.3
million) and bank stock tax ($1.2 million) expenses also
contributed to the rise in operating expense. For the first
six months of 1997, the efficiency ratio was 57.85%, compared
to 59.38% for the same period in 1996.
FINANCIAL CONDITION ANALYSIS
Loans
At June 30, 1997, loans were $6.5 billion, 20% higher than
one year ago and 5% higher than year-end 1996. Average loans
for the second quarter of 1997 were $6.3 billion, 20% higher
than last year's same period. Loan growth continues to be
broad-based with the most significant increases in commercial
and commercial real estate.
On August 7, 1997, FCC's subsidiary bank, First National
Bank of Commerce (First NBC), issued $300 million of credit
card securities, which are backed by the cash flows from credit
card receivables. This transaction will be accounted for as a
sale under the criteria established by SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." First NBC retained the
servicing and customer relationships of the underlying credit
card accounts.
Securities
Securities were $2.1 billion at the end of the second
quarter, compared to $2.2 billion at December 31, 1996. For
both periods, all securities were classified as available for
sale. Unrealized gains, net of tax, increased stockholders'
equity $21 million at June 30, 1997, compared to $23 million at
year-end 1996. Market value fluctuations are related to
changes in the level of securities and market interest rates.
During 1997's second quarter, securities averaged $2.1
billion, 6% lower than 1996's second quarter. The majority of
the proceeds from securities maturing during 1996 funded loan
growth. It is likely that the proceeds from securities
maturities or sales will be reinvested in other securities
during 1997.
Money Market Investments
Money market investments were $34 million at June 30,
1997. Average money market investments for the second quarter
of 1997 were $57 million, compared to $101 million for the
second quarter of 1996. The reduction funded loan growth. As
a percent of average earning assets, money market investments
were 1% for both periods.
Deposits
At June 30, 1997, deposits were $7.7 billion, compared to
$7.3 billion at year-end 1996. Average deposits for the
current quarter were $7.5 billion, 8% over 1996's second
quarter. Deposit growth was primarily related to FCC's retail
brokered CD program and public funds deposits. FCC's retail
brokered CD program was established in the fourth quarter of
1996. CDs issued under this program are included in time
deposits of $100,000 and over and averaged $274 million for the
second quarter of 1997. Average core deposits, which exclude
time deposits of $100,000 and over, rose 1%, compared to the
second quarter of 1996.
Short-Term Borrowings
Short-term borrowings were $416 million as of June 30,
1997, a 56% decline from December 31, 1996. The decline
reflected the issuance of longer-term brokered CDs and bank
notes, plus the higher level of public funds deposits. During
the second quarter, short-term borrowings averaged $442
million, or 5% of average earning assets, compared to $419
million, or 6% of average earning assets, for 1996's second
quarter.
Long-Term Debt
At June 30, 1997, long-term debt was $340 million,
compared to $81 million at December 31, 1996. In January 1997,
First NBC established an ongoing bank note program to diversify
its access to wholesale funding sources. The increase in long-
term debt from year-end 1996 reflects the issuance of $260
million of bank notes under this program. The bank notes
issued have an average original maturity of three years.
Interest Rate Contracts
The total notional amount of FCC's interest rate contracts
at June 30, 1997 was $776 million, compared to $766 million at
March 31, 1997. Table 3 summarizes FCC's interest rate
contracts at June 30, 1997. During the current quarter, FCC
entered into interest rate swaps with a total notional amount
of $10 million. These interest rate swaps convert a portion of
retail brokered CDs from fixed to floating rate.
For the second quarter and first six months of 1997,
interest rate contracts increased net interest income $454,000
and $580,000, respectively. At June 30, 1997, the estimated
fair value of FCC's interest rate contracts was $3.9 million,
compared to a loss of $862,000 at March 31, 1997. The change
is due to a decline in market interest rates.
Liquidity
In order to enhance liquidity, FCC has begun to diversify
its access to wholesale funding sources. Retail brokered CD
and bank note programs were established in the fourth quarter
of 1996 and the first quarter of 1997, respectively. In
addition, FCC has established a credit card securitization
program. On August 7, 1997, First NBC issued $300 million of
credit card securities under this program. This issuance is
discussed more completely in the Loans section of this
Financial Review.
Capital and Dividends
At June 30, 1997, stockholders' equity was 8.17% of total
assets, compared to 7.87% at December 31, 1996. The increase
reflects net earnings for the six-month period, plus the effect
of the conversion of SARs to stock options. Table 5 presents
FCC's risk-based and other capital ratios as of June 30, 1997
and year-end 1996. All ratios remain well above regulatory
minimums. Under present regulations, all six of FCC's banks
are classified as "well-capitalized."
At the end of the second quarter, the Parent Company had
$72 million of net working capital. Additionally, the Parent
Company could receive dividends from the Banks without prior
regulatory approval of $69 million, plus an amount equal to the
Banks' adjusted net profits for the remainder of the year.
Credit Risk Management
Nonperforming Assets
Nonperforming assets were $37 million at June 30, 1997,
compared to $32 million at year-end 1996. The increase was
mainly due to several commercial loans placed on nonaccrual
status during the first quarter of 1997. Nonperforming assets
were .56% of loans at the end of the second quarter, compared
to .51% at December 31, 1996. 61% of nonperforming loans were
contractually current or no more than 30 days past due at the
end of the second quarter, compared to 42% at December 31,
1996.
Accruing loans past due 90 days or more were $28 million,
or .43% of loans, at June 30, 1997, compared to $29 million, or
.47% of loans, at December 31, 1996. Watch list loans and
foreclosed assets were $178 million at quarter-end, compared to
$157 million at December 31, 1996.
Table 6 presents information on nonperforming assets,
detailed by type, as of June 30, 1997 and December 31, 1996.
Allowance for Loan Losses
The allowance for loan losses was $88 million, or 1.34% of
loans, at June 30, 1997, compared to $82 million, or 1.31% of
loans, at year-end 1996. At the end of 1997's second quarter,
the allowance for loan losses was 259% of nonperforming loans,
compared to 299% at December 31, 1996. For the six months
ended June 30, 1997, the provision exceeded net charge-offs by
$6.1 million, reflecting both the strong loan growth and the
effect of increasing charge-offs during the last twelve months,
which impacted the experience factor used in the allowance
calculation, both of which are expected to be factors in the
provision calculation over the next few quarters. Management
believes that the allowance is adequate to cover losses
inherent in the loan portfolio.
For the second quarter, net charge-offs were $9 million,
or .55% of loans. Net charge-offs were $13 million, or .85% of
loans, in the first quarter of 1997 and $7 million, or .51% of
loans, in 1996's second quarter. For the six-month periods,
net charge-offs were $22 million, or .70%, in 1997 and $12
million, or .45%, in 1996.
Higher net charge-offs of credit card loans and loans to
individuals caused the increase in net charge-offs from 1996's
second quarter. Credit card net charge-offs were $4 million
higher than in the second quarter of 1996. As a percent of
average credit card loans, credit card net charge-offs were
4.16% in 1997's second quarter, compared to 3.08% in 1996's
same period. The increase in credit card net charge-offs
reflected the national trend, also experienced at FCC, of
rising credit card loan losses. Net charge-offs of loans to
individuals rose $2 million, compared to the second quarter of
1996.
The decline in net charge-offs from 1997's first quarter
reflected lower net charge-offs on credit card loans and loans
to individuals, plus higher recoveries on commercial loans.
Credit card net charge-offs decreased to $8.7 million this
quarter, or 4.16% of average credit card loans, from $9.0
million, or 4.40%, in the prior quarter. Net charge-offs of
loans to individuals were .76% in the second quarter, compared
to .90% last quarter. Commercial net recoveries rose $3
million, mainly due to one commercial real estate recovery.
Dependent primarily upon economic conditions, national and
regional trends, net charge-off levels, and changes in the
level and mix of the loan portfolio, FCC's provision for loan
losses may grow in future periods.
Table 7 presents the activity in the allowance for loan
losses for the second quarters and first six months of 1997 and
1996.
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a) AND
INTEREST RATES
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
- ----------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (b) $6,328,964 $141,577 8.97% $5,277,895 $117,420 8.94%
Securities
Taxable 1,976,165 32,571 6.60 2,109,071 34,425 6.55
Tax-exempt 82,018 2,094 10.21 88,212 2,242 10.17
- ----------------------------------------------------------------------------------------------
Total securities 2,058,183 34,665 6.75 2,197,283 36,667 6.70
- ----------------------------------------------------------------------------------------------
Money market
investments 57,408 735 5.13 101,228 1,284 5.10
- ----------------------------------------------------------------------------------------------
Total earning assets 8,444,555 $176,977 8.40% 7,576,406 $155,371 8.24%
- ----------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets(c) 749,202 783,071
Allowance for loan losses (84,950) (75,089)
- ----------------------------------------------------------------------------------------------
Total assets $9,108,807 $8,284,388
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,191,372 $6,585 2.22% $1,097,870 $5,016 1.84%
Money market
investment deposits 931,577 7,825 3.37 872,893 6,467 2.98
Savings and other
consumer time deposits 2,740,309 33,234 4.86 2,803,482 32,893 4.72
Time deposits $100,000
and over 1,303,118 18,317 5.64 796,395 10,553 5.33
- ----------------------------------------------------------------------------------------------
Total interest-bearing
deposits 6,166,376 65,961 4.29 5,570,640 54,929 3.97
- ----------------------------------------------------------------------------------------------
Short-term borrowings 442,184 5,773 5.24 418,792 5,545 5.33
Long-term debt 340,208 6,951 8.17 85,980 2,608 12.20
- ----------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 6,948,768 $78,685 4.54% 6,075,412 $63,082 4.18%
- ----------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing
deposits 1,295,884 1,347,057
Other liabilities 127,795 122,979
Stockholders' equity 736,360 738,940
- ----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $9,108,807 $8,284,388
==============================================================================================
Net interest income
(FTE) and margin $98,292 4.67% $92,289 4.89%
- ----------------------------------------------------------------------------------------------
Net earning assets
and interest spread $1,495,787 3.86% $1,500,994 4.06%
- ----------------------------------------------------------------------------------------------
Cost of funds 3.73% 3.35%
- ----------------------------------------------------------------------------------------------
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for
loan losses and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
TABLE 1. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (FTE)(a) AND
INTEREST RATES (continued)
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
- ----------------------------------------------------------------------------------------------
Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (b) $6,267,825 $278,129 8.94% $5,224,210 $232,310 8.94%
Securities
Taxable 2,014,405 66,125 6.60 2,238,131 72,888 6.54
Tax-exempt 83,201 4,222 10.15 89,209 4,497 10.08
- ----------------------------------------------------------------------------------------------
Total securities 2,097,606 70,347 6.74 2,327,340 77,385 6.67
- ----------------------------------------------------------------------------------------------
Money market
investments 57,086 1,417 5.00 86,586 2,209 5.13
- ----------------------------------------------------------------------------------------------
Total earning assets 8,422,517 $349,893 8.36% 7,638,136 $311,904 8.20%
- ----------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets(c) 757,203 800,912
Allowance for loan losses (83,919) (75,510)
- ----------------------------------------------------------------------------------------------
Total assets $9,095,801 $8,363,538
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW account deposits $1,231,020 $14,012 2.30% $1,116,580 $10,735 1.93%
Money market
investment deposits 907,445 14,665 3.26 839,561 12,378 2.96
Savings and other
consumer time deposits 2,744,141 65,720 4.83 2,803,438 66,046 4.74
Time deposits $100,000
and over 1,230,828 34,067 5.58 781,951 20,883 5.37
- ----------------------------------------------------------------------------------------------
Total interest-bearing
deposits 6,113,434 128,464 4.24 5,541,530 110,042 3.99
- ----------------------------------------------------------------------------------------------
Short-term borrowings 510,003 13,067 5.17 511,110 13,862 5.45
Long-term debt 298,970 12,478 8.35 86,504 5,327 12.38
- ----------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 6,922,407 $154,009 4.48% 6,139,144 $129,231 4.23%
- ----------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
AND STOCKHOLDERS' EQUITY
Noninterest-bearing
deposits 1,304,380 1,362,294
Other liabilities 138,831 122,587
Stockholders' equity 730,183 739,513
- ----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $9,095,801 $8,363,538
==============================================================================================
Net interest income
(FTE) and margin $195,884 4.68% $182,673 4.80%
- ----------------------------------------------------------------------------------------------
Net earning assets
and interest spread $1,500,110 3.88% $1,498,992 3.97%
- ----------------------------------------------------------------------------------------------
Cost of funds 3.68% 3.40%
- ----------------------------------------------------------------------------------------------
(a) Fully taxable equivalent based on a 35% tax rate.
(b) Net of unearned income, prior to deduction of allowance for
loan losses and including nonaccrual loans.
(c) Includes mark-to-market adjustment on securities available for sale.
TABLE 2. SUMMARY OF CHANGES IN NET INTEREST INCOME (FTE) (a)
Three Months Ended June 30, 1997 Six Months Ended June 30, 1997
Compared to Three Months Ended Compared to Six Months Ended
June 30, 1996 June 30, 1996
- ----------------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Increase Change in Change in Increase Change in Change in
(in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME (FTE)
Loans $ 24,157 $ 24,290 $ (133) $ 45,819 $ 48,149 $ (2,330)
Securities
Taxable (1,854) (2,129) 275 (6,763) (7,256) 493
Tax-exempt (148) (158) 10 (275) (305) 30
- ----------------------------------------------------------------------------------------------------------------
Total securities (2,002) (2,287) 285 (7,038) (7,561) 523
- ----------------------------------------------------------------------------------------------------------------
Money market investments (549) (609) 60 (792) (811) 19
- ----------------------------------------------------------------------------------------------------------------
Total interest income
(FTE) $ 21,606 $ 21,394 $ 212 $ 37,989 $ 39,777 $ (1,788)
================================================================================================================
INTEREST EXPENSE
Interest-bearing deposits
NOW account deposits $ 1,569 $ 453 $ 1,116 $ 3,277 $ 1,173 $ 2,104
Money market investment
deposits 1,358 454 904 2,287 1,045 1,242
Savings and other consumer
time deposits 341 (751) 1,092 (326) (1,410) 1,084
Time deposits $100,000
and over 7,764 7,087 677 13,184 12,392 792
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 11,032 7,243 3,789 18,422 13,200 5,222
- ----------------------------------------------------------------------------------------------------------------
Short-term borrowings 228 306 (78) (795) (30) (765)
Long-term debt 4,343 5,445 (1,102) 7,151 9,357 (2,206)
- ----------------------------------------------------------------------------------------------------------------
Total interest expense $ 15,603 $ 12,994 $ 2,609 $ 24,778 $ 22,527 $ 2,251
- ----------------------------------------------------------------------------------------------------------------
Change in net interest
income (FTE) $ 6,003 $ 8,400 $ (2,397) $ 13,211 $ 17,250 $ (4,039)
================================================================================================================
(a) Changes not solely due to either volume or rate are allocated on a proportional basis.
TABLE 3. INTEREST RATE CONTRACTS
Weighted Average Rate
----------------------------------
Pay
Receive Floating
Notional Maturity Fixed Rate Strike Underlying
(dollars in thousands) Amount Date Rate (LIBOR) Rate Asset/Liability
- ---------------------------------------------------------------------------------------------------------------------------
Floors $500,000 December 1998 -% -% 4.65% Transaction deposits
Swaps 10,000 February 1998 -February 2000 6.19 5.74 - Long-term bank notes
Swaps 166,000 January 1999 - February 2002 6.44 5.82 - Retail brokered CDs
Swap 100,000 March 2002 7.18 5.78 - Loans
- ---------------------------------------------------------------------------------------------------------------------------
Total at June 30, 1997 $776,000 6.70% 5.80% 4.65%
===========================================================================================================================
TABLE 4. NET INTEREST INCOME (EXPENSE) FROM INTEREST RATE CONTRACTS
(in thousands) Floors Swaps Total
- ---------------------------------------------------------------------
Three months ended June 30, 1997
Interest income $ - $ 596 $ 596
Amortization (142) - (142)
- ---------------------------------------------------------------------
Net interest income (expense) $ (142) $ 596 $ 454
=====================================================================
Six months ended June 30, 1997
Interest income $ - $ 864 $ 864
Amortization (284) - (284)
- ---------------------------------------------------------------------
Net interest income (expense) $ (284) $ 864 $ 580
=====================================================================
TABLE 5. RISK-BASED CAPITAL AND CAPITAL RATIOS
June 30 December 31
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------
Tier 1 capital $ 725,383 $ 683,190
Tier 2 capital 130,977 126,993
- ----------------------------------------------------------------------------
Total capital $ 856,360 $ 810,183
============================================================================
Risk-weighted assets $6,610,529 $6,294,032
============================================================================
Ratios
Leverage ratio 7.98% 7.76%
Tier 1 capital 10.97% 10.85%
Total capital 12.95% 12.87%
Equity ratio 8.17% 7.87%
Tangible equity ratio 8.01% 7.69%
============================================================================
TABLE 6. NONPERFORMING ASSETS
June 30 December 31
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------
Nonaccrual loans by type
Loans to individuals-residential
mortgages $ 8,081 $ 7,908
Loans to individuals-other 1,438 1,007
Commercial, financial and other 11,243 11,037
Real estate-commercial mortgages 12,687 6,687
Real estate-construction and other 427 616
- ----------------------------------------------------------------------------
Total nonaccrual loans 33,876 27,255
- ----------------------------------------------------------------------------
Foreclosed assets 2,830 4,600
- ----------------------------------------------------------------------------
Total nonperforming assets $ 36,706 $ 31,855
============================================================================
Loans past due 90 days or more
and not on nonaccrual status $ 27,987 $ 29,451
============================================================================
Ratios
Nonperforming assets as a percent of
loans plus foreclosed assets 0.56% 0.51%
Allowance for loan losses as a
percent of nonperforming loans 258.92% 299.42%
Loans past due 90 days or more and
not on nonaccrual status as
a percent of loans 0.43% 0.47%
============================================================================
TABLE 7. SUMMARY OF LOAN LOSS EXPERIENCE
====================================================================================
Three Months Ended Six Months Ended
June 30 June 30
(dollars in thousands) 1997 1996 1997 1996
====================================================================================
Balance at beginning of period $81,690 $74,534 $81,606 $75,845
Provision charged to expense 14,775 7,465 28,000 11,290
Loans charged to the allowance
Loans to individuals-residential
mortgages 30 46 37 52
Loans to individuals-other 5,183 3,269 10,826 6,547
Commercial, financial and other 206 204 1,312 281
Real estate-commercial mortgages 1 - 21 1
Real estate-construction and other - - 2 -
Credit card loans 9,831 5,904 19,819 10,855
- ------------------------------------------------------------------------------------
Total charge-offs 15,251 9,423 32,017 17,736
- ------------------------------------------------------------------------------------
Recoveries on loans previously
charged to the allowance
Loans to individuals-residential
mortgages 58 84 231 148
Loans to individuals-other 1,351 1,168 2,651 2,075
Commercial, financial and other 571 393 1,489 1,476
Real estate-commercial mortgages 3,349 144 3,630 277
Real estate-construction and other 3 6 8 162
Credit card loans 1,167 961 2,115 1,795
- -------------------------------------------------------------------------------------
Total recoveries 6,499 2,756 10,124 5,933
- ------------------------------------------------------------------------------------
Net charge-offs 8,752 6,667 21,893 11,803
- ------------------------------------------------------------------------------------
Balance at end of period $87,713 $75,332 $87,713 $75,332
====================================================================================
Gross annualized charge-offs as
a percent of average loans 0.96% 0.71% 1.02% 0.68%
Recoveries as a percent of
gross charge-offs 42.61% 29.25% 31.62% 33.45%
Net annualized charge-offs
as a percent of average loans 0.55% 0.51% 0.70% 0.45%
Allowance for loan losses as a
percent of loans at end of period 1.34% 1.39% 1.34% 1.39%
====================================================================================
Part II: Other Information
Item 1. Legal Proceedings.
At June 30, 1997, FCC's wholly owned
subsidiary, First National Bank of Commerce (First
NBC), was a defendant in a suit filed against it
by First Trust National Association (First Trust)
in the U. S. District Court for the Southern
District of Mississippi on June 10, 1997. First
Trust, in its capacity as indenture trustee of
certain mortgage notes, alleges that First NBC, as
disbursing agent for the proceeds of sale of the
notes, breached its contractual obligations by
disbursing funds without following the terms of
the Disbursement Agreement. First Trust seeks
reimbursement from First NBC for any losses by it
and the holders of the notes, estimated by it at
$25 million, plus expenses. In the opinion of
management, after consulting with counsel, the
ultimate outcome of the litigation is not expected
to result in a material adverse effect upon FCC.
FCC and its subsidiaries have been named as
defendants in various other legal actions arising
from normal business activities in which damages
in various amounts are claimed. The amount, if
any, of ultimate liability with respect to such
matters cannot be determined, but is not expected
to be material.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the shareholders of FCC was
held on April 21, 1997.
(b) and (c)
BROKER
SUBMISSION OF MATTERS FOR AGAINST* ABSTAIN NONVOTE
I. Directors Elected
Ian Arnof 28,415,828 150,552 0 0
James J. Bailey III 28,419,563 146,817 0 0
John W. Barton 28,422,979 143,401 0 0
Sydney J. Besthoff III 28,119,869 446,511 0 0
Robert H. Bolton 28,406,332 160,048 0 0
Robert C. Cudd III 28,425,340 141,040 0 0
Frances B. Davis 28,419,286 147,094 0 0
Laurance Eustis, Jr. 28,408,964 157,416 0 0
William P. Fuller 28,426,829 139,551 0 0
Arthur Hollins III 28,420,824 145,556 0 0
F. Ben James, Jr. 28,433,172 133,208 0 0
Erik F. Johnsen 28,141,326 425,054 0 0
J. Merrick Jones, Jr. 28,434,306 132,074 0 0
Edwin Lupberger 28,156,173 410,207 0 0
Mary Chavanne Martin 28,355,370 211,010 0 0
Hugh G. McDonald, Jr. 28,429,282 137,098 0 0
Saul A. Mintz 28,414,115 152,265 0 0
Hermann Moyse, Jr. 28,412,883 153,497 0 0
O. Miles Pollard, Jr. 28,431,550 134,830 0 0
G. Frank Purvis, Jr. 28,410,181 156,199 0 0
Tom H. Scott 28,406,645 159,735 0 0
Edward M. Simmons 28,420,242 146,138 0 0
H. Leighton Steward 28,431,106 135,274 0 0
Robert A. Weigle 28,434,306 132,074 0 0
II. 1997 Stock Option Plan 27,070,190 1,211,114 285,076 0
III. Performance goals for 27,428,715 759,272 378,393 0
restricted stock and
performance share awards
under FCC's 1992 Stock
Incentive Plan
*With respect to the election of directors, amounts
shown reflect shares as to which authority to vote was withheld.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
4.1 - Indenture between FCC and Republic Bank,
Dallas, N.A., Trustee, (trusteeship since
transferred to The Bank of New York)
including the form of 12 3/4% Convertible
Debentures due 2000, Series A included as
Exhibit 4.1 to FCC's Annual Report on Form
10-K for the year ended December 31, 1985,
and incorporated herein by reference.
4.2 - Indenture between FCC and Republic Bank,
Dallas, N.A., Trustee, (trusteeship since
transferred to The Bank of New York)
including the form of 12 3/4% Convertible
Debentures due 2000, Series B included as
Exhibit 4.2 to FCC's Annual Report on Form
10-K for the year ended December 31, 1985,
and incorporated herein by reference.
4.3 - Rights Agreement between FCC and First
Chicago Trust Company of New York as Rights
Agent included as Exhibit 4.3 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by
reference.
10.1 - Form of Employment Agreement between FCC and
Messrs. Arnof, Brooks, Flick, Gaines, Ryan,
Thompson, Wilson and Ms. Lee included as
Exhibit 10.1 to FCC's Annual Report on Form
10-K for the year ended December 31,1995, and
incorporated herein by reference.
10.2 - FCC Amended and Restated Supplemental Tax-
Deferred Savings Plan included as Exhibit
10.1 to FCC's Annual Report on Form 10-K for
the year ended December 31, 1994, and
incorporated herein by reference.
10.3 - FCC Amended and Restated Retirement Benefit
Restoration Plan included as Exhibit 10.3 to
FCC's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and
incorporated herein by reference.
10.4 - Form of Nonqualified Stock Option Agreement
under the FCC 1992 Stock Incentive Plan and
Form of Restricted Stock Agreement under the
FCC 1992 Stock Incentive Plan included as
Exhibit 10.2 to FCC's Annual Report on Form
10-K for the year ended December 31, 1992,
and incorporated herein by reference.
10.5 - FCC Amended and Restated 1992 Stock Incentive
Plan included as Exhibit 10.4 to FCC's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated
herein by reference.
10.6 - FCC Supplemental Executive Retirement Plan
included as Exhibit 10.6 to FCC's Annual
Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference.
10.7 - FCC Directors' Phantom Stock Plan included as
Exhibit 10.7 to FCC's Annual Report on Form
10-K for the year ended December 31, 1996,
and incorporated herein by reference.
10.8 - FCC Change in Control Severance Plan included
as Exhibit 10.8 to FCC's Annual Report on
Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
10.9 - FCC 1997 Stock Option Plan included as
Exhibit 10.9 to FCC's Quarterly Report on
Form 10-Q for the quarter ended March 31,
1997, and incorporated herein by reference.
11 - Statement Re: Computation of Earnings Per
Share
15 - Letter regarding unaudited interim financial
information
27 - Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated April 14, 1997 was
filed by the Registrant under Item 5, Other
Events. The document was filed to disclose
FCC's issuance of a press release dated April
11, 1997, announcing FCC's earnings for the
First Quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
First Commerce Corporation
(Registrant)
Date: August 13, 1997 /s/ Thomas L. Callicutt, Jr.
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Thomas L. Callicutt, Jr.
Executive Vice President, Controller and
Principal Accounting Officer